UK government borrowing fell for a third consecutive month in December, according to the latest public finance data, signalling a gradual easing of fiscal pressures after a prolonged period of elevated deficits.

The figures show that public sector net borrowing came in lower than economists had expected, reflecting stronger tax receipts and some restraint in day-to-day spending, even as debt levels remain historically high.

The improvement was driven in part by higher income tax and value-added tax revenues, supported by resilient employment levels and nominal wage growth.

At the same time, debt interest costs declined compared with earlier in the year, as inflation-linked payments moderated and financing conditions stabilised.

While total public debt remains close to record levels relative to the size of the economy, the month-on-month reduction in borrowing has been viewed by markets as a cautiously positive signal.

The run of lower borrowing comes as the government seeks to demonstrate fiscal credibility amid heightened scrutiny from investors and rating agencies.

Recent volatility in gilt markets has underscored the sensitivity of UK assets to perceptions of budget discipline, making the trajectory of public finances a central focus for policymakers.

Officials have reiterated their commitment to maintaining sustainable public finances while supporting economic growth.

Economists cautioned that a few months of improved data do not, on their own, resolve longer-term challenges linked to weak productivity growth, ageing demographics and pressures on public services.

Nonetheless, the latest figures suggest that near-term fiscal dynamics are moving in a more favourable direction, providing the government with some breathing space as it prepares future budget decisions.